Case

Case Study
Study || Charitable
Charitable Asset
Asset Management
Management

RESIDENTIAL
REAL ESTATE

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Case Study | Charitable Asset Management

Assessing Potential Gift Property Typical Donor Profile

• Age 65 and older
• Donor owns a condominium in Florida that has been in the family for thirty years
• Multiple properties are part of
• Property is being rented to generate retirement cash flow
donor’s long-term appreciated
• Present market value of condo is estimated to be $425,000 with an original asset portfolio
cost-basis in 1984 of $180,000
• No children or children are provided
• Donor’s children live far away and have no interest in Florida condo for by other estate assets or do not
need to inherit
Questions to Ask Donor Donor Motivation
• What are the donor’s objectives in making a gift? (Determines gift vehicle) • Support for the charitable mission
• Is there a mortgage on the property or any outstanding liens? (Best practices of the organization
is to pay off mortgage) • Wants to eliminate capital gains
• Has the highly appreciated property become a burden to own? (Desire to reduce tax liability
everyday costs such as taxes, insurance, utilities, maintenance) • Income tax deduction needed
• What is the current value of the property? Who is sourcing this estimated value? to shelter an unusual capital gain
such as from sale of business or
• How is the title held? If jointly, are they a married couple? (Property can be retitled if
primary residence
not married couple)
• Desire to make a decision regarding
• What is the environmental history of the property?
a property rather than burden family
• Any potential buyers? (There can be no pre-arranged sale in existence) after donor passes away

Information to Gather
Property Details
Use State Street Global Advisors’ Site Review Checklist
(includes detailed accounting)

External services required and paid by Donor

Qualified Appraisal / Legal Counsel

External services required and paid by Trust

Real Estate Broker Commission / Legal Closing Costs

External services required and paid by Charity

Environmental Site Assessment / Legal Counsel

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Case Study | Charitable Asset Management

Environmental Phase I & II Site Assessments Case Study Workflow

The Phase I Environmental Site Assessment is the first step in Comparison: Donor establishes Flip CRUT with property
the process of environmental due diligence to assess the risk vs. Donor sells property
that the property presents. A Phase II Environmental Site
Assessment is done if there is contamination found in the Phase Assumptions
I Assessment and the charity decides that it wants to continue • Sale price is $425,000, Cost basis of property is $180,000
the due diligence process. The Phase II Assessment is more • Capital Gains tax of 23.8%
detailed and more expensive.
• 5% total return on proceeds from sale of real estate
(income + appreciation)
Recommended Solutions
5% Flip Trust Sell Real Estate
• Donor establishes a FLIP Charitable Remainder Trust* (best
Sale Price $425,000 $425,000
practices is for Donor to be Trustee)
Total Closing Cost $25,000 $25,000
• Trustee (Donor) sells the property by engaging with local Capital Gains Tax ——— $52,360
real estate agency
Net Principal to Invest $400,000 $347,640
• Trustee (Donor) pays expenses of the property before the sale Yearly Total Return $20,000 $17,382

Potential Benefits of Flip Charitable

Remainder Unitrust to Donor Assumptions for Charitable Tax Deduction
• Property owner is 72 years old
• Donor avoids capital gains tax on highly appreciated asset
• Sale price is $425,000, Cost basis of property is $180,000
• Donor may take an immediate charitable, income-tax
deduction equal to the present value of the charity’s • Income tax bracket is 39.6%
remainder interest (need qualified appraisal to calculate).
5% Flip Trust Sell Real Estate
This deduction can be used to offset unusual capital gain
Net Principal to Invest $400,000 $347,640
from sale of another property
Charitable Deduction $221,736 ———
• Donor receives a stream of income for life which can be used
Income Tax Savings $87,807 ———
as supplemental retirement income
• Donor’s philanthropic intent is carried out while furthering
the mission of favorite charity
This case study may not be representative of the experience of
other customers and is not a guarantee of future performance
or success. This information is for illustrative purposes only.

* As its name suggests, a flip trust starts out as a charitable remainder unitrust
(CRUT) having one kind of structure, but then “flips” to have a different structure
during the rest of the trust term. In particular, a flip trust must begin with a
net-income limitation, meaning it will be either be: a net-income CRUT (NICRUT)
or a net-income with make-up CRUT (NIMCRUT) initially and then will be
transformed into a standard CRUT (SCRUT). It is not possible to have a flip trust
that begins as a CRUT and then becomes a charitable remainder annuity trust
(CRAT), nor is the opposite possible.
The flip occurs in connection with what the IRS refers to as a “triggering event,”
about which more will be said momentarily. At the start of the taxable year of the
trust (which, in the case of a CRT, is the same as the calendar year), after the
taxable year in which the triggering event has occurred, the trust commences
its existence as a SCRUT going forward. It cannot become a NICRUT or a
NIMCRUT again. State Street Global Advisors 3
Case Study | Charitable Asset Management
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